Archive for MF Global
We also reminisced about our collective battle on the MF Global front, discussed Typhon, and talked about the upcoming book which will contain a full chapter about MF Global with special acknowledgements to James and the entire Commodity Customer Coalition.
Continued thanks to the Bloomberg, New York Post, and Motley Fool media outlets who personally helped me get my story out on behalf of all customers.
As you may know, a portion of any tuition received from the Jellie trader educational videos is donated to a charitable cause, which in the past has included the American Diabetes Association, GrowUganda.org, and the Commodity Customer Coalition (CCC).
I’m pleased to announce that we’ll once again be including the CCC among our current causes, and I’ll be presenting James Koutoulas a check for $800 tomorrow in Boston.
In total, we’ve raised over $20,000 for charity and I hope to be able to continue to provide support to such worthy causes as we more forward.
For despite massive and pervasive theft, corruption, self-interest, finger-pointing, red tape, and regulatory ineptitude at every MF Global turn, we simply wouldn’t back down. And we won.
For this trader, the MF Global saga – with all of its twists and turns over the past 11 months - is over … and with a more than acceptable ending as by this time on Monday I will have completed the sale of my remaining MF Global claims and passed the risk of the last few pennies to the bond market. And I hope the buyer profits from the purchase, as – borrowing from an old professional trader adage – it’s always good to leave some for the other guy.
And yes, I said pennies, as for all intents and purposes, bond market prices are screaming that MF Global customers will essentially get all their money back, and I was more than willing to “hit the bid” and give up a few cents to gain immediate access to the capital and grow it faster and farther than it ever would if it simply sat mired in bankruptcy red-tape. Heck, percentage-wise, it doesn’t even rank among my largest trading losses.
Yes, we won.
Many months ago, I mentioned in these pages that it would be incredibly wrong to underestimate the conviction of those who were harmed, whether traders, investors, hedgers or farmers. And for traders … if the world hasn’t noticed, we get knocked down every day in our business … BUT … we keep getting up.
We won because of people like James Koutoulas, John Roe, Trace Schmeltz, Greg Collett, and the entire Commodity Customer Coalition team, who when they saw the incredible ineptitude in dealing with this incredible wrong, stepped to the plate big-time. We won because there were some in the press that didn’t listen to the JP Morgan and Louis Freeh spin machines, and instead listened to our individual plights and granted interviews to help get our story out.
I could go on.
On a personal level, the last year has had a profound impact on how I’ve viewed life, both solidifying the incredible good and evil that are at work and in constant conflict in this world.
Before I go further, let me say that I’m extremely fortunate in that my accounts could have been transferred to PFG Best as some were, where lightning literally struck twice. So my thoughts and prayers continue to go out to those still stuck in the mire.
I suppose the greatest effect has been a stark reminder that we’re simply stewards of whatever assets God has given us during our brief time here, and that our true security lies in far greater places than a bank account.
For me, I still don’t know why I was so richly blessed with industry-leading performance in the late 2000s … just as I don’t know why much of the last year transpired the way it did where my capital and incredible passion for this business were temporarily stolen. But what I do know is that both instances are reminders not to get too high or too low as we travel life’s roller-coaster, and that we should keep our eyes fixed on our true destination.
Another little-known tidbit in my personal story is that about a month prior to the MF Global Halloween fiasco, I was asked to help a growing international corporation (not at all related to the markets) develop their 2012 budget. It was an interim effort which relied on past skills and relationships, with potential upside in terms of opportunity. The downside? It would temporarily take my mind and focus off the markets and, as a result, result in lower total income. Yet I thought the change of pace would be good and accepted.
Looking back, it was as if the Master plan went something like, “OK, you’re heading for some incredible crap … but I’ve got a safe place in mind for you over here while that gets worked out. Just hang on tight and stay the course.”
Many have said over the years that my writing skills are strong … yet, even if true, I could never have crafted such a plot. And even if I had, no one would have believed it.
The final moral?
Life happens. It just does.
As I told my daughter the other day after she was questioning a recent decision to split with her boyfriend, there are no bad decisions. Except that the only bad decision is no decision. For every decision either teaches, reinforces, or redirects us to where we need to go.
And my previous decision to rely on the dozens of protective mechanisms in place to safeguard customer futures funds when choosing where to deploy my capital? Well, suffice it to say that I’m now substantially diversified, and have added trading leveraged ETFs to my portfolio. And yes, I still trade and love trading the futures!
So another page turns … but the book remains the same.
For at the end of the story, right trumps wrong, and good overcomes evil. It always has and always will.
It’s just that sometimes good has to stand up for itself to overcome the deafening roar coming from the other side.
And while much work remains to fully restore confidence and rebuild this great industry, at this end – like Rob Petrie in the opening to the Dick Van Dyke show – I don’t plan on tripping over the ottoman a second time.
Today’s post implores the CME & CFTC to stop the current MF Global Spin Machine and heal the industry.
Telling it like it is … as always.
In light of the MF Global Bankruptcy Trustee’s update released last week, which astonishingly announced that MF Global had been LONG dipping into customer monies to fund daily operations … funds which per congressional hearings were supposed to be segregated “every second of every day … i.e. segregated means segregated”, I sent the following letter to the CME, CFTC, all major news services, and via the growing Twitter trader network on Wednesday.
February 8, 2012
To: All Major News Services
CME Completely Misses MF Global’s Ongoing Game of Chicken
There’s a game children play where one child puts his/her hand down on the table, and then attempts to pull it out just as the other child tries to “trap” it via a slap. On a far larger and more dangerous scale, there’s a similar “game” called Russian Roulette which, well, it unfortunately speaks for itself.
Essentially, per the Trustee’s press release and update to the Court on Monday (excerpt below), these are precisely the games MF Global had been playing – in the Trustee’s words – “regularly”.
The investigation to date has found that transactions regularly moved between accounts and that funds believed to be in excess of segregation requirements in the commodities segregated accounts were used to fund other daily activities of MF Global. In the past, such transfers were in amounts of less than $50 million, but as liquidity demands increased and could not be met from internal sources, much larger amounts were used, apparently with the assumption that funds would be restored by the end of the day. By Wednesday, October 26, as the result of increasing demands for funds or collateral throughout MF Global, funds did not return as anticipated. As these withdrawals occurred, a lack of intraday accounting visibility existed, caused in part by the volume of transactions being executed, and the 4(d) U.S. 2 segregated commodity customer account appears to have reached a deficit condition on Wednesday, October 26 that continued through to MF Global’s bankruptcy.
As any auditor will tell you, there are very simple audit techniques that catch such activity. Yet for some inexplicable and inexcusable reason, the CME as regulating entity, as well as the CFTC, completely missed this ongoing game. As a result, just like that child whose hand finally gets “trapped”, MF Global & CME customers got caught in the squeeze … and are still waiting to be freed.
We continue our ongoing and rightful industry call for the CME to make customers whole and end this circus.
And on a related point, you’ll recall that in last week’s post I refered to the CME repeated use of a “band-aid” to try to stop a $1.2 Billion (now $1.6 Billion as of Friday) bleeding aorta.
Wouldn’t you know it that Bloomberg reported on Friday that members of the National Cattlemen’s Beef Association shoved the CME’s “3rd grade math” and “chickenfeed” public relations ploy attempt right back at them.
Band-aids and chickenfeed won’t solve the problem.
And until the regulating entity responsible for safeguarding our funds truly steps to the plate and rights this wrong via full restoration of funds, the bleeding will continue.
A highly-seasoned trader, one who rose to the top of the industry in 2008 after a decade of personal discovery, one who was managing capital preservation effectively – even during periods of burnout, flash crashes, etc., one who fully understood the sanctity and multiple regulatory & industry firewall concepts related to “segregated funds”, one who devoted the last decade to educating traders & improving industry transparency, and one who – if he had a trading fault, it was excessively tight trade management at times where experience, intuition, or conditions instructed him otherwise, suddenly saw 100% of his capital vanish.
To him, a 0.5% loss was unimaginable. That’s 0.005. Not 100% … and subsequently 28% as the climb back to 100% continues.
Yet as history shows, three months ago, that is precisely what happened to this trader as a result of the MF Global fiasco.
Many who have followed me over the years, will recall that in 2008, I coined the term “EESM”, which stood for “emergency & extended scalp mode”. Of course, the reference at that time, was to describe the mode I’d enter after getting knocked back in an unexpected trade sequence.
Well, that could also describe the last three months, as we began the arduous climb back toward 100% restoration of our capital and the highly public “Horton Hears a Who” public relations, regulatory, and legislative fight in which I’ve been immensely immersed over the past 90 days.
And while I was involved in my own “trade-gone-bad” fight, it quickly became a “fight for everyone” battle as I chose to put aside trading, teaching, and everything else to focus on making a very LOUD voice at Bloomberg, Forbes, the NY Post, Chicago Tribune, the Motley Fool, CME, CFTC, the Commodity Customer Coalition, Bankrutpcy Trustee, Judge, Legislators … well, the list goes on.
As does the list of everything else which went wrong, including:
The CFTC for not supporting customers via a backroom deal that allowed the MF Global Bankruptcy to incorrectly go the SIPC route to protect the creditors and 1% of MF Global’s customer base based on a few hundred security accounts vs. 99% futures accounts. Thank you Congressman Michael Grimm for hammering that point home in Thursday’s hearing.
CFTC Commissioner Sommers for going on vacation in the middle of the battle.
The CME essentially admitting they had accountability by agreeing to provide a $50 Million tiny band-aid (you know, one of those small round ones) for a bursting $1.2 Billion aorta, then recently setting up a fund GOING FORWARD to protect customers should this ever happen again, but basically flipping their finger at its customers and members who lost funds under its watch.
And I could continue the list of wrongs on and on and, well, I guess I have over the last 3 months.
Which brings me to a question so many of you have asked me recently … what happens now in terms of this blog, my teachings, my trading, my continued fight, etc.
To better explain my perspective and roadmap for going forward, let me first say that I intentionally backed off trading education & “Jellie” related posts for one primary reason … for as my public profile exploded beyond an already-high baseline, I didn’t want a single thread of hint that I would use such opportunity to profit from discussion of my educational tools.
So I went on a three-month mission of silence on the teaching front, all the while I was on a three-month “screaming at the top of my voice” mission to right the clear wrongs.
Plus, as always, I felt sharing reality was equally important to formal instruction.
So, as I move forward, here are some answers to many of your questions in terms of my roadmap for the future.
First, let it be known that I will continue the highly public battle to fully restore 100% of our funds through holding the CFTC & CME fully accountable for their actions via every legal, legislative, regulatory, and public relations means at my disposal, in part by using my high profile pulpit to speak loudly on the behalf of traders everywhere.
Second, after a three-month period of essential silence on trader education, I will begin to refocus posts and this site toward our core concept of education, beginning today with a one-time 33% price discount of the industry-acclaimed Jellie trader Webinars to $1k until 2/11, with this week’s charitable cause reflecting the Commodity Customer Coalition who continues to fight on behalf of traders everywhere. Simply email me at firstname.lastname@example.org and I’ll email a discounted invoice.
Third, and to those of you who have asked whether I plan to continue trading, the answer is a qualified, but resounding “yes”.
The qualification? I’ll continue to make my point with the CME via careful & purposeful management of my trading volumes under – what race cars would call – a “governor”. And yes, I’ll do so even at the “expense” of personal opportunity cost to make our continued points loud and clear.
Yes, it’s been quite the 3-month journey and we still have work to do.
But I won’t let it stop our continuing core mission of full transparency & education … for if the last three months have told us anything, it’s that the void of education and understanding the consumer side of this business has only grown greater in recent years.
So the fight goes on.
In the end, we know that good overcomes evil, and right overcomes wrong.
It always has and always will.
Sometimes, “good” simply needs to speak up … loudly.
And rest assured that is exactly what will continue to happen from this end.
My memo to the CME Board from yesterday.
January 27, 2012
To: CME Board of Directors & Mr. Terry Duffy
As you may know, it was about two months ago that I spoke with Mr. Bryan Durkin, asking both him and the CME Group Board to step to the plate in what many of us called a “Tylenol” moment. Specifically, history has clearly told us that like the Tylenol fiasco many years ago – where the company undertook immediate & swift action to remove all products from shelves at some initial expense to fully restore industry credibility – thus turning a very bad short-term event into a positive for the customers, industry, and in-turn, the company and its shareholders – that a similarly swift and FULL move by the CME to immediately restore market credibility was the obvious right answer for its customers, industry, and yes – its shareholders.
And while it remains unfortunate for the industry that the CME did not follow through its small initial steps by shifting the $550M Trustee guarantee to instead help fill the customer shortfall, it’s still not too late to take such action, and we again plead with the CME to take such rightful action which would provide the credibility we require to re-enter the futures markets.
Until recently, I was among MF Global’s largest traders providing market liquidity via the CME. Yet, like thousands of others, I’m now left on the sidelines until full credibility and capital restoration has been ensured. The unfortunate result is the plummeting of exchange volumes (I sit in front of an unfunded screen day after day and see futures volumes barely budge), as well as a highly disturbing 15% divergence between the CME Group’s stock price and industry indices which continues without abatement (see attached chart) that reflects the dwindling volumes and continued erosion of confidence.
When a restaurant customer receives a bad meal, the firm immediately “comps” the dinner knowing full well if it didn’t, that the customer and his/her future revenues would vanish. For the small initial cost is far outweighed by the sustained revenue stream.
This situation is no different, and we once again implore the CME Group to complete its initial baby steps with a full and swift restoration of capital – for the sake of the industry and its shareholders. Had such action been taken in November, there is little doubt that the continued erosion of market participation, confidence, and CME market capitalization would be long forgotten and far away in the rear view mirror.
Please help us help you restore the integrity of the markets and reverse the trend.
We – your customers and shareholders – deserve the obvious and rightful response.
Help us return to work in an industry that once made us so very proud.
Yes, despite limited blogging lately, I’m still alive and very active on many fronts, including PivotPoint Advisors – where our target zone has been reached and we’ve initiated the selling of positions established in last December and early January (see this week’s Briefing), and the ongoing MF Global saga.
On the PivotPoint front, our expected price targets were hit as the result of late December’s technical breakout, and we’ve begun to lock in 4%-5% portfolio gains.
As it relates to MF Global, the Motley Fool again quoted me, this time as the lead to today’s piece entitled, “The Astonishing Lack of Progress at MF Global“. The quote refers to an extract of my recent letter to the CME, CFTC and Congress entitled, “The Continued & Unnecessary Stranding of MF Global Customers” which continues to circulate around the industry.
I will continue to fight EVERY day and on EVERY front for the immediate and 100% return of capital to customers who trusted the industry’s touted safeguards until full restoration has occurred.
From the second this happened on 10-31-11, my first thought was, “They’d better not mess with futures customers … for they don’t realize the depths of our strength and resolve.”
Don’t mess with traders or futures customers folks.
We won’t go away.